Tuesday, March 26, 2013

On Palm Sunday we re-watched Alan Parker’s 1996 film adaptation of Andrew Lloyd Webber’s Evita. It got me to wondering whether some creative team might someday make a similar musical biopic about Hugo Chávez.

After all, the public manifestations of grief in the streets of Venezuela after the president’s death were not unlike those that followed the demise of Eva Perón, as depicted in Parker’s movie.

I am by no means the first to suggest that Chávez’s policies and political style amounted to a Venezuelan flavor of Peronism. Like the Peróns in the late 1940s and early 1950s, Chávez was personally very popular. And like them, he pursued policies that were essentially fascist but justified them with socialist rhetoric. A further parallel: his cult of adoration is likely to live on because of his untimely death, at 58. Eva Perón, who succumbed to cancer at 33, is still evoked by many in Argentina as some sort of combination of saint and champion of the people.

In the days after Chávez’s death, the UK’s Financial Times provided a very helpful overview of the state of the left in Latin America. Its author, John Paul Rathbone, pointed out that there are two strains of leftism in the region—a division that was highlighted by an event that was overshadowed by Chávez’s prolonged demise. After five years of waiting for permission to leave Cuba, writer and pro-democracy blogger Yoani Sánchez went on a tour, beginning in Brazil, to promote her cause.

Wrote Rathbone, “At a São Paulo bookshop, about 200 young socialist activists burst into the room proclaiming her a CIA spy. One protester chanted: ‘Mercenary.’ It was the same kind of invective that Chávez, Cuba’s closest ally, had levelled against Caracas’s middle class, which he condemned as los escuálidos or the ‘squalid ones.'” But she was also reassured by many Brazilians that those activists were not representative.

Citing the Mexican intellectual Jorge Castañeda’s 2006 Foreign Affairs article, the FT piece differentiates between the “modern, open-minded, reformist and internationalist” strand of leftism represented by Brazil, Peru and Uruguay and the “nationalistic, strident and closed-minded” strand represented by Cuba, Venezuela, Ecuador and Bolivia. (He also tentatively includes the basket case which is Argentina under Cristina Fernández de Kirchner in the latter category.)

To me Chávez was always a thug who, paradoxically, managed to achieve power at the ballot box after failing to achieve it through a military coup. (Usually, it’s the other way around.) While he clearly used thuggish methods to stay in power—notably by muzzling both the press and the political opposition and though some level of corruption in the electoral process—there is no denying that he had sufficient popular support to be considered his country’s legitimate leader. It just goes to show that one should never underestimate how important it is for people to have a leader who gives voice to what they are feeling and who, unlike previous presidents, looks like them.

That Chávez remained, and remains, so popular is a head scratcher for those of us who deal more in numbers than in emotions. Despite (or because of?) price controls implemented ten years ago, there are food shortages and food inflation at a whopping 1,284 percent. The murder rate last year was 73 per 100,000 people. Despite the various give-away programs that made him beloved, living standards are generally below where they were when he came to power in 1998. And this in a country that is sitting on top of incredible oil wealth. Some of that wealth has found its way into social programs, but a lot has been squandered through corruption and subsidies to other countries that subscribe to the political philosophy of Chavismo.

One report had Chávez’s personal net worth at the time of his death at $2 billion. If that’s true, it might be worth finding out who has control of all that money now and asking them if they are interested in underwriting a new Broadway musical.

Friday, March 22, 2013

It was a shock to a lot of people to hear that a country in the European Union was actually going to tax bank accounts, that is, confiscate a percentage of the money that people have in the bank. You quickly heard people in other European countries—and some in the United States—asking, could that happen here as well?

Well, of course, it’s possible. But it’s not very likely—at least in the immediate future. This is because Cyprus’s situation is different from most other countries. It is small and it has based much of its economy on banking. And it has set itself up as a haven for money belonging to wealthy people in other countries, notably Russia.

Cyprus’s problem was that there was really hardly any other place to go looking for the money other than in the bank accounts. And a lot of the money in Cypriot banks is considered dodgy because it is suspected of being there to avoid taxes in other countries and the EU was not inclined to dig into its own pockets to protect the assets of Russian oligarchs.

But there are some interesting and sobering lessons in all this for people in other countries. One is that the insistence (mainly by the International Monetary Fund) that depositors in Cypriot banks cough up money for the country’s bailout demonstrates that, when they need money, bureaucrats and functionaries can be quick to leave due process by the wayside. If there is dirty money in Cypriot banks, shouldn’t the owners of those accounts be prosecuted in court and fined accordingly? Instead, the government was pressured to confiscate money out of all accounts, regardless of whether the owners were crooks or merely hardworking people who had saved up for years.

The more important lesson, however, is a mathematical one. Originally, the government wanted to get the money from those who could best afford it and, presumably, therefore the most likely to have acquired it through questionable means. In other words, they were only going to tax accounts over €100,000. But to get the amount of money it needed, it would have had to set the rate at a whopping 18 percent. So, instead, the government came up with a scheme to tax accounts over €100,000 at 10 percent and those under €100,000 at 6 percent.

So the lesson is this. When the government talks about the wealthy paying “a bit more” to keep the government going, there isn’t really as much money there as you might think. If you are not bothered too much by the idea of higher taxes on the wealthy because your own taxes won’t be affected, you might want to consider the fact that you and others in the more average income brackets actually earn a lot more money (collectively) than the super-wealthy do. And when governments need money, they inevitably go where the money is.

What’s more, when taxes go high enough, they become self-defeating because the more money the government takes out of the private sector, the less money that is left for jobs in the private sector. This is because much of the money that is being paid in taxes would otherwise be invested in companies—especially by people in higher brackets. So fewer jobs translate to fewer tax revenues. And it’s taxes collected on people working in the private sector that subsidize people working in the public sector, so eventually those jobs (mainly at the state and local levels) get hit too.

And when income taxes don’t bring in enough money, well, who can blame a government that is running a huge deficit for looking around at other places to find money? Like bank accounts.

Wednesday, March 20, 2013

The bar for an official “crisis” in the Euro Zone seems to get higher and higher. Basically, if a major collapse of part of the continent’s economy does not seem likely on this very day, then we’re not in crisis.

It seems as though anything that gets us through the month or the week or even just the rest of the day is hailed as “crisis averted.”

I notice that President Obama has adopted this same short-term approach. In his Good Morning America interview with George Stephanpoulos last week, the president said, “We don’t have an immediate crisis in terms of debt. In fact, for the next 10 years, it’s gonna be in a sustainable place.”

If that’s true, it’s only because he’s president of the United States of America and not of any other country on earth because few other countries would still be able to keep on borrowing money when their debt-to-GDP ratio had exceeded 100 percent and is still growing because its huge entitlement programs are on auto-pilot in terms of promises made to the current and future generations.

In fairness, the president is 100 percent correct, in the sense that there is no immediate crisis. This is because there is still a fair amount of time to avert disaster. The problem is that he shows no interest in averting disaster, but time keeps marching on anyway. Presumably one of his successors can deal with all this. But by then, the necessary corrections will be that much more painful. If he really cares about the people who are and will be dependent on Medicare and other entitlements, why is he making no move to ensure that they survive?

Maybe it’s because he reads Paul Krugman in The New York Times. Early last week the Nobel laureate declared in his column that the current deficit is sustainable and, in fact, that it is actually too small! Even though what the U.S. owes is equivalent to more than what it produces. His reasoning is that the deficit is really a much smaller number if you just adjust it for a more normal economy than we have now, i.e. one with near full employment. Really. You can’t make this stuff up. I’d love to see him try to explain that reasoning to someone who isn’t even counted in the unemployment figures anymore because she stopped looking for work years ago.

But the fact remains that Obama and Krugman are correct in the sense that there is no immediate crisis. Especially when compared to Europe, which is also inexplicably sanguine—despite all the portents on this side of the Atlantic. The latest crisis du jour, of course, is Cyprus. At the last minute the island nation’s politicians balked at the insistence of the European Union (spurred on by the International Monetary Fund) that Cyprus pay for part of its own bailout by confiscating money from of the accounts of the banks that have brought the country down.

On the face of it, that insistence seems unfair—and ultimately it is. Why should bank customers have to forfeit a portion of their savings to pay debts incurred by bankers? The rationale is that some portion of those bank deposits are dirty, since Cyprus has become an international facilitator of money laundering. But not all of them are. Certainly, accounts with small amounts in them should be presumed to be the savings of honest people, shouldn’they?

But here’s the rub. Without taking money from the small accounts as well as the large ones, the percentage that would have to be taken from the large accounts would be unbearably high. And there’s a limit to how much the Cypriot politicians want to tee off the Russian customers that have given them so much business. So the plan was to take a smaller amount (6 to 10 percent) from everyone.

Not surprisingly, the outrage poured into the streets. And who can blame people for a little protesting when the money in their bank accounts is about to be confiscated to pay for the bad judgment and/or crimes of others? So the politicians flinched, and the crisis enters a new phase. Will the EU blink and cough up a bigger share of the bailout? Or will they just kick Cyprus out and let them contend with the wolves at their door by themselves?

By the way, Cyprus’s debt-to-GDP ratio was 127 percent late last year. Not to worry. The U.S.’s is projected to be only 112 percent by 2016.

Saturday, March 2, 2013

To be sure, it’s a fairly mild form of austerity, i.e. over a ten-year period $44.8 trillion will be spent instead of $46 trillion. Most countries would love to be suffering this kind of austerity.

Here’s an unfair comparison, but I’ll make it anyway. The sequester amounts to a much smaller hit proportionately than the recent income tax increase, which the president argued was the wealthy’s “fair share” and which they could easily afford. It is becoming clear that the government will actually have to work hard at keeping any bad side effects (layoffs, transportation delays, safety problems) from looking like they are merely the results of bad management.

The fact that the dreaded sequester is small potatoes compared to the austerity Ireland has been undergoing for years now has not stopped the Irish (and British) press from echoing the U.S. president’s line that the spending pullback will be devastating. In fact, they have continued this line even while the president himself has drawn back and acknowledged that the sequester’s effects will be more subtle and drawn-out than he was previously suggesting.

BBC radio has been particularly interesting to listen to. When its business reporters are questioned by a show’s host, they tell a tale of impending doom for the U.S. economy because of the sequester. They are then sometimes followed by an actual economist who invariably explains that, no, it won’t really be that big a deal.

Make no mistake, a cut in spending—even a cut that is merely in the rate of spending, as this is—will have an effect on U.S. growth, as the president keeps telling us. The question is: is there a better alternative? Simply continuing to ignore the increasing imbalance between government revenues and expenditures might keep things feeling better in the short term, but it’s disastrous in the long run—and maybe even sooner than the long run.

What the U.S. is doing is a faint echo of what many European countries have been doing. When the numbers get too hard to ignore, politicians argue with each other whether to cut spending or increase taxes. Finally, in the apparent spirit of compromise, they often wind up doing both—which pretty cancels out the benefits of both. And that is what the U.S. has done. In January taxes were increased (although not by a huge amount) and now spending is being sort of reined in (by an even less degree).

But not only will it make little difference (beyond the benefit one or other of the political parties can accrue by successfully making the blame stick to the other) but it distracts from the real problems, which are entitlements that grow faster than revenues can keep up with and a tax system that has grown so complicated that it is worse than unfair; it is inefficient.

The good news is that there are people in both parties who see the problems for what they are and would like to work to solve them. The bad news is that the president, who does not have to face reelection, has shown no real interest in entitlement reform or tax reform. He gives lip service to both, but in more than four years has made no move to push either.

Even legendary Washington reporter Bob Woodward, who literally wrote the book on how the sequester came about, has been causing waves by speaking the obvious truth. The president has not negotiated with Republicans in good faith. He keeps moving the goal posts, and in doing so accrues political victories for himself.

The Latest Novelfrom Scott R. Larson

About Me

To date, I have written four novels. The latest, The Curse of Septimus Bridge, a tale of mystery, passion, romance, the supernatural, reincarnation, and the need to fight demons, both figuratively and literally. My other books include Maximilian and Carlotta Are Dead, about two young men who take off on an ill-advised adventure in Mexico in the summer of 1971; its sequel, Lautaro's Spear; and the swashbuckling sword-and-sorcery saga, The Three Towers of Afranor. When not writing novels, I blog about film, world events, and my books. Originally from California, I have also lived in Ohio and the Pacific Northwest, as well as in France and Chile. Currently, I find myself ensconced in rural life in the West of Ireland.